Touted as the biggest economic reform since Independence, the Goods and Services Tax (GST) was supposed to replace the complex indirect tax system prevalent in the country with a more simplified, uniform regime.
As its roll-out completes one year on June 30, it can be argued that while India has come a long way from a complicated taxation system, with over a dozen different taxes and many more cesses, GST is still far away from an ideal taxation regime.
Also, the one year journey of the GST has not been a smooth one either with glitches and teething problems experienced from day one. While many of those glitches were addressed by a proactive government, some still remain to be resolved including simplification of return filing and further rationalisation of tax rates.
According to NITI Aayog Vice Chairman Rajiv Kumar: “GST has put the economy on a completely different paradigm now because more and more pressure will be on people to register under GST and bring their economic activity into the formal sector.”
It is not enough only to analyse the one year journey, but it is important to understand the future roadmap.
While many economist would argue that an ideal GST structure should have a universal coverage and a single tax rate, most would also agree that it was not practical for a country like India with vast economic disparities. This is a stand the government has also maintained often giving the example that “a BMW car and a Hawai ‘chappal’ (flip-flops) can’t be taxed at the same rate”.
However, having six different rates — 5, 12, 18 and 28 per cent apart from some items being taxed at zero per cent and gold at 3 per cent — makes India’s GST one of the most complex in the world, something acknowledged by the World Bank in its biannual India Development Update report. “To make things worse, petroleum products, power and real estate have been kept outside the GST ambit,” the report noted.
It added that not only India has one of the largest number of tax slabs, but at 28 per cent, it has the highest standard GST rate in Asia and the second highest in the world after Chile.
Soon after the new indirect tax system was rolled out, NITI Aayog Member Bibek Debroy — who is now also the chairman of the Prime Minister’s Economic Advisory Council — had said that “India is a long way off from the ideal GST structure and it may not get there anytime in the near future”.
Favouring a maximum of three GST rates with all items covered, Debroy had said that starting with seven rates, “depending on how you count it”, has put India in a situation where it may not get to the ideal GST.
Fast forward to present. The economy is still grappling with the rather high multiplicity of tax rates while also debating bringing petroleum products, electricity and other items into the GST net with little clarity in the picture.
While there has been expression of intent by the government to merge some of the tax slabs, there has been little progress on that front so far.
Right from the first day of the roll-out on July 1 last year, there were technical glitches appearing on the GST Network portal causing a lot of hardship to taxpayers in registering on the network.
There were often instances of the portal not being able to take the load of last-minute rush to file returns, forcing the government to postpone the filing deadlines several times.
Finance Secretary Hasmukh Adhia said earlier this week that GST had now entered a “smooth phase” with good tax compliance. He added the priority of the government would now be simplification of tax return forms.
Deloitte India Partner Prashant Deshpande said while GST has resolved the issues of multiple taxable events and double taxation, there are some concerns which still need to be addressed.